pld-10q_20190930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-13545 (Prologis, Inc.) 001-14245 (Prologis, L.P.)

Prologis, Inc.

Prologis, L.P.

(Exact name of registrant as specified in its charter)

Maryland (Prologis, Inc.) Delaware (Prologis, L.P.)		94-3281941 (Prologis, Inc.) 94-3285362 (Prologis, L.P.)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Pier 1, Bay 1, San Francisco, California		94111
(Address or principal executive offices)		(Zip Code)

(415) 394-9000

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

	Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Prologis, Inc.	Common Stock, $0.01 par value	PLD	New York Stock Exchange
Prologis, L.P.	1.375% Notes due 2021	PLD/21	New York Stock Exchange
Prologis, L.P.	3.000% Notes due 2022	PLD/22	New York Stock Exchange
Prologis, L.P.	3.375% Notes due 2024	PLD/24	New York Stock Exchange
Prologis, L.P.	3.000% Notes due 2026	PLD/26	New York Stock Exchange
Prologis, L.P.	2.250% Notes due 2029	PLD/29	New York Stock Exchange
Prologis, L.P.	Floating Rate Notes due 2020	PLD/20B	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.

Prologis, Inc.	Yes	☒	No	☐
Prologis, L.P.	Yes	☒	No	☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter periods that the registrant was required to submit such files).

Prologis, Inc.	Yes	☒	No	☐
Prologis, L.P.	Yes	☒	No	☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Prologis, Inc.:
Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐

Prologis, L.P.:
Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Prologis, Inc.	Yes	☐	No	☒
Prologis, L.P.	Yes	☐	No	☒

The number of shares of Prologis, Inc.’s common stock outstanding at October 17, 2019, was approximately 631,744,000.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2019, of Prologis, Inc. and Prologis, L.P. Unless stated otherwise or the context otherwise requires, references to “Prologis, Inc.” or the “Parent” mean Prologis, Inc. and its consolidated subsidiaries; and references to “Prologis, L.P.” or the “Operating Partnership” or the “OP” mean Prologis, L.P., and its consolidated subsidiaries. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and the OP collectively.

The Parent is a real estate investment trust (a “REIT”) and the general partner of the OP. At September 30, 2019, the Parent owned 97.22% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.78% common limited partnership interests are owned by unaffiliated investors and certain current and former directors and officers of the Parent.

We operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As sole general partner, the Parent has control of the OP through complete responsibility and discretion in the day-to-day management and therefore, consolidates the OP for financial reporting purposes. Because the only significant asset of the Parent is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

We believe combining the quarterly reports on Form 10-Q of the Parent and the OP into this single report results in the following benefits:

•	enhances investors’ understanding of the Parent and the OP by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•	eliminates duplicative disclosure and provides a more streamlined and readable presentation as a substantial portion of the Company’s disclosure applies to both the Parent and the OP; and

•	creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

It is important to understand the few differences between the Parent and the OP in the context of how we operate the Company. The Parent does not conduct business itself, other than acting as the sole general partner of the OP and issuing public equity from time to time. The OP holds substantially all the assets of the business, directly or indirectly. The OP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent, which are contributed to the OP in exchange for partnership units, the OP generates capital required by the business through the OP’s operations, incurrence of indebtedness and issuance of partnership units to third parties.

The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Parent and those of the OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in the Parent and in the OP.

The preferred stock, common stock, additional paid-in capital, accumulated other comprehensive income (loss) and distributions in excess of net earnings of the Parent are presented as stockholders’ equity in the Parent’s consolidated financial statements. These items represent the common and preferred general partnership interests held by the Parent in the OP and are presented as general partner’s capital within partners’ capital in the OP’s consolidated financial statements. The common limited partnership interests held by the limited partners in the OP are presented as noncontrolling interest within equity in the Parent’s consolidated financial statements and as limited partners’ capital within partners’ capital in the OP’s consolidated financial statements.

To highlight the differences between the Parent and the OP, separate sections in this report, as applicable, individually discuss the Parent and the OP, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent and the OP, this report refers to actions or holdings as being actions or holdings of Prologis.

PROLOGIS

INDEX

			Page Number
PART I.	Financial Information
	Item 1.	Financial Statements		1
	Prologis, Inc.:
		Consolidated Balance Sheets – September 30, 2019 and December 31, 2018		1
		Consolidated Statements of Income – Three and Nine Months Ended September 30, 2019 and 2018		2
		Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2019 and 2018		3
		Consolidated Statements of Equity – Three and Nine Months Ended September 30, 2019 and 2018		4
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2019 and 2018		5
	Prologis, L.P.:
		Consolidated Balance Sheets – September 30, 2019 and December 31, 2018		6
		Consolidated Statements of Income – Three and Nine Months Ended September 30, 2019 and 2018		7
		Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2019 and 2018		8
		Consolidated Statements of Capital – Three and Nine Months Ended September 30, 2019 and 2018		9
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2019 and 2018		10
	Prologis, Inc. and Prologis, L.P.:
		Notes to the Consolidated Financial Statements		11
		Note 1. General		11
		Note 2. DCT Transaction		12
		Note 3. Real Estate		13
		Note 4. Unconsolidated Entities		15
		Note 5. Assets Held for Sale or Contribution		17
		Note 6. Debt		17
		Note 7. Noncontrolling Interests		19
		Note 8. Long-Term Compensation		20
		Note 9. Earnings Per Common Share or Unit		21
		Note 10. Financial Instruments and Fair Value Measurements		23
		Note 11. Business Segments		26
		Note 12. Supplemental Cash Flow Information		28
		Reports of Independent Registered Public Accounting Firm		29
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		48
	Item 4.	Controls and Procedures		49
PART II.	Other Information
	Item 1.	Legal Proceedings		50
	Item 1A.	Risk Factors		50
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		50
	Item 3.	Defaults Upon Senior Securities		50
	Item 4.	Mine Safety Disclosures		50
	Item 5.	Other Information		50
	Item 6.	Exhibits		50

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	September 30, 2019			December 31,
	(Unaudited)			2018
ASSETS
Investments in real estate properties	$	34,911,650		$	34,586,987
Less accumulated depreciation		5,287,640			4,656,680
Net investments in real estate properties		29,624,010			29,930,307
Investments in and advances to unconsolidated entities		5,886,820			5,745,294
Assets held for sale or contribution		799,017			622,288
Net investments in real estate		36,309,847			36,297,889

Lease right-of-use assets		437,038			-
Cash and cash equivalents		1,024,994			343,856
Other assets		1,676,306			1,775,919
Total assets	$	39,448,185		$	38,417,664

LIABILITIES AND EQUITY
Liabilities:
Debt	$	11,459,223		$	11,089,815
Lease liabilities		432,122			-
Accounts payable and accrued expenses		808,898			760,515
Other liabilities		812,365			766,446
Total liabilities		13,512,608			12,616,776

Equity:
Prologis, Inc. stockholders’ equity:
Series Q preferred stock at stated liquidation preference of $50 per share; $0.01 par value; 1,379 shares issued and outstanding and 100,000 preferred shares authorized at September 30, 2019 and December 31, 2018		68,948			68,948
Common stock; $0.01 par value; 631,743 shares and 629,616 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		6,317			6,296
Additional paid-in capital		25,693,652			25,685,987
Accumulated other comprehensive loss		(1,050,246	)		(1,084,671	)
Distributions in excess of net earnings		(2,201,461	)		(2,378,467	)
Total Prologis, Inc. stockholders’ equity		22,517,210			22,298,093
Noncontrolling interests		3,418,367			3,502,795
Total equity		25,935,577			25,800,888
Total liabilities and equity	$	39,448,185		$	38,417,664

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues:
Rental	$	710,465		$	608,974		$	2,107,961		$	1,709,596
Strategic capital		230,467			71,142			393,416			279,800
Development management and other		1,249			2,316			3,228			7,968
Total revenues		942,181			682,432			2,504,605			1,997,364
Expenses:
Rental		180,864			147,184			550,070			423,454
Strategic capital		63,404			35,390			138,668			114,100
General and administrative		65,199			62,244			201,176			182,287
Depreciation and amortization		282,254			252,702			850,639			660,456
Other		2,294			3,391			9,643			11,145
Total expenses		594,015			500,911			1,750,196			1,391,442

Operating income before gains on real estate transactions, net		348,166			181,521			754,409			605,922
Gains on real estate transactions, net		123,314			194,058			535,717			483,430
Operating income		471,480			375,579			1,290,126			1,089,352

Other income (expense):
Earnings from unconsolidated entities, net		46,302			56,634			151,524			181,839
Interest expense		(60,244	)		(64,186	)		(179,873	)		(166,761	)
Interest and other income, net		654			1,891			12,876			9,508
Foreign currency and derivative gains, net		59,492			21,513			70,267			65,801
Losses on early extinguishment of debt, net		(13,585	)		(1,955	)		(16,086	)		(2,657	)
Total other income		32,619			13,897			38,708			87,730
Earnings before income taxes		504,099			389,476			1,328,834			1,177,082
Total income tax expense		13,086			13,956			53,230			44,612
Consolidated net earnings		491,013			375,520			1,275,604			1,132,470
Less net earnings attributable to noncontrolling interests		38,867			27,684			89,636			81,169
Net earnings attributable to controlling interests		452,146			347,836			1,185,968			1,051,301
Less preferred stock dividends		1,507			1,491			4,498			4,443
Net earnings attributable to common stockholders	$	450,639		$	346,345		$	1,181,470		$	1,046,858

Weighted average common shares outstanding – Basic		630,929			574,520			630,356			546,612
Weighted average common shares outstanding – Diluted		655,259			597,647			654,818			568,599

Net earnings per share attributable to common stockholders – Basic	$	0.71		$	0.60		$	1.87		$	1.92

Net earnings per share attributable to common stockholders – Diluted	$	0.71		$	0.60		$	1.86		$	1.90

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Consolidated net earnings	$	491,013		$	375,520		$	1,275,604		$	1,132,470
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		30,053			(10,316	)		42,471			(153,359	)
Unrealized gains (losses) on derivative contracts, net		(616	)		4,454			(6,974	)		298
Comprehensive income		520,450			369,658			1,311,101			979,409
Net earnings attributable to noncontrolling interests		(38,867	)		(27,684	)		(89,636	)		(81,169	)
Other comprehensive loss (income) attributable to noncontrolling interests		(574	)		783			(1,072	)		8,154
Comprehensive income attributable to common stockholders	$	481,009		$	342,757		$	1,220,393		$	906,394

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

Three Months Ended September 30, 2019 and 2018

			Common Stock						Accumulated			Distributions
			Number				Additional		Other			in Excess of			Non-
	Preferred		of		Par		Paid-in		Comprehensive			Net			controlling			Total
	Stock		Shares		Value		Capital		Income (Loss)			Earnings			Interests			Equity
Balance at July 1, 2019	$	68,948		631,054	$	6,311	$	25,651,666	$	(1,079,109	)	$	(2,317,008	)	$	3,446,625		$	25,777,433
Consolidated net earnings		-		-		-		-		-			452,146			38,867			491,013
Effect of equity compensation plans		-		51		1		11,938		-			-			14,261			26,200
Capital contributions		-		-		-		-		-			-			5			5
Purchase of noncontrolling interests		-		-		-		2,557		-			-			(3,932	)		(1,375	)
Redemption of noncontrolling interests		-		638		5		22,158		-			-			(31,770	)		(9,607	)
Foreign currency translation gains, net		-		-		-		-		29,469			-			584			30,053
Unrealized losses on derivative contracts, net		-		-		-		-		(606	)		-			(10	)		(616	)
Reallocation of equity		-		-		-		5,333		-			-			(5,333	)		-
Dividends ($0.53 per common share) and other		-		-		-		-		-			(336,599	)		(40,930	)		(377,529	)
Balance at September 30, 2019	$	68,948		631,743	$	6,317	$	25,693,652	$	(1,050,246	)	$	(2,201,461	)	$	3,418,367		$	25,935,577

Balance at July 1, 2018	$	68,948	533,303	$	5,333	$	19,322,016		$	(1,041,486	)	$	(2,716,241	)	$	3,087,933		$	18,726,503
Consolidated net earnings		-	-		-		-			-			347,836			27,684			375,520
Effect of equity compensation plans		-	40		-		12,790			-			-			13,314			26,104
DCT Transaction, net of issuance costs		-	96,179		962		6,321,667			-			-			293,286			6,615,915
Capital contributions		-	-		-		-			-			-			79,121			79,121
Redemption of noncontrolling interests		-	-		-		(1,738	)		-			-			(26,908	)		(28,646	)
Foreign currency translation losses, net		-	-		-		-			(9,403	)		-			(913	)		(10,316	)
Unrealized gains on derivative contracts, net		-	-		-		-			4,324			-			130			4,454
Reallocation of equity		-	-		-		19,923			-			-			(19,923	)		-
Dividends ($0.48 per common share) and other		-	-		-		(1	)		-			(304,331	)		(46,668	)		(351,000	)
Balance at September 30, 2018	$	68,948	629,522	$	6,295	$	25,674,657		$	(1,046,565	)	$	(2,672,736	)	$	3,407,056		$	25,437,655

Nine Months Ended September 30, 2019 and 2018

			Common Stock							Accumulated			Distributions
			Number				Additional			Other			in Excess of			Non-
	Preferred		of		Par		Paid-in			Comprehensive			Net			controlling			Total
	Stock		Shares		Value		Capital			Income (Loss)			Earnings			Interests			Equity
Balance at January 1, 2019	$	68,948		629,616	$	6,296	$	25,685,987		$	(1,084,671	)	$	(2,378,467	)	$	3,502,795		$	25,800,888
Consolidated net earnings		-		-		-		-			-			1,185,968			89,636			1,275,604
Effect of equity compensation plans		-		942		10		22,480			-			-			51,582			74,072
Capital contributions		-		-		-		-			-			-			9,076			9,076
Purchase of noncontrolling interests		-		-		-		2,557			-			-			(3,932	)		(1,375	)
Redemption of noncontrolling interests		-		1,185		11		31,630			-			-			(137,132	)		(105,491	)
Contribution to Brazil venture		-		-		-		-			-			-			(12,630	)		(12,630	)
Foreign currency translation gains, net		-		-		-		-			41,206			-			1,265			42,471
Unrealized losses on derivative contracts, net		-		-		-		-			(6,781	)		-			(193	)		(6,974	)
Reallocation of equity		-		-		-		(48,985	)		-			-			48,985			-
Dividends ($1.59 per common share) and other		-		-		-		(17	)		-			(1,008,962	)		(131,085	)		(1,140,064	)
Balance at September 30, 2019	$	68,948		631,743	$	6,317	$	25,693,652		$	(1,050,246	)	$	(2,201,461	)	$	3,418,367		$	25,935,577

Balance at January 1, 2018	$	68,948	532,186	$	5,322	$	19,363,007		$	(901,658	)	$	(2,904,461	)	$	3,074,583		$	18,705,741
Consolidated net earnings		-	-		-		-			-			1,051,301			81,169			1,132,470
Effect of equity compensation plans		-	1,157		11		21,625			-			-			38,149			59,785
DCT Transaction, net of issuance costs		-	96,179		962		6,321,667			-			-			293,286			6,615,915
Capital contributions		-	-		-		-			-			-			117,095			117,095
Redemption of noncontrolling interests		-	-		-		(4,530	)		-			-			(47,884	)		(52,414	)
Foreign currency translation losses, net		-	-		-		-			(145,196	)		-			(8,163	)		(153,359	)
Unrealized gains on derivative contracts, net		-	-		-		-			289			-			9			298
Reallocation of equity		-	-		-		(27,004	)		-			-			27,004			-
Dividends ($1.44 per common share) and other		-	-		-		(108	)		-			(819,576	)		(168,192	)		(987,876	)
Balance at September 30, 2018	$	68,948	629,522	$	6,295	$	25,674,657		$	(1,046,565	)	$	(2,672,736	)	$	3,407,056		$	25,437,655

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended
	September 30,
	2019			2018
Operating activities:
Consolidated net earnings	$	1,275,604		$	1,132,470
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(77,157	)		(45,372	)
Equity-based compensation awards		72,467			58,029
Depreciation and amortization		850,639			660,456
Earnings from unconsolidated entities, net		(151,524	)		(181,839	)
Operating distributions from unconsolidated entities		269,992			250,763
Decrease (increase) in operating receivables from unconsolidated entities		(99,762	)		5,933
Amortization of debt discounts and debt issuance costs, net		12,642			8,533
Gains on real estate transactions, net		(535,717	)		(483,430	)
Unrealized foreign currency and derivative gains, net		(51,373	)		(73,120	)
Losses on early extinguishment of debt, net		16,086			2,657
Deferred income tax expense (benefit)		9,769			(1,079	)
Increase in accounts receivable, lease right-of-use assets and other assets		(25,849	)		(77,275	)
Increase in accounts payable and accrued expenses, lease liabilities and other liabilities		81,843			17,192
Net cash provided by operating activities		1,647,660			1,273,918
Investing activities:
Real estate development		(1,271,656	)		(1,332,923	)
DCT Transaction, net of cash acquired		-			(46,268	)
Real estate acquisitions		(660,836	)		(508,655	)
Tenant improvements and lease commissions on previously leased space		(128,413	)		(91,194	)
Property improvements		(89,132	)		(62,473	)
Proceeds from dispositions and contributions of real estate properties		1,769,296			1,307,534
Investments in and advances to unconsolidated entities		(256,727	)		(117,005	)
Return of investment from unconsolidated entities		360,106			175,600
Proceeds from repayment of notes receivable backed by real estate		-			34,260
Proceeds from the settlement of net investment hedges		23,640			3,370
Payments on the settlement of net investment hedges		(28,524	)		(6,351	)
Net cash used in investing activities		(282,246	)		(644,105	)
Financing activities:
Proceeds from issuance of common stock		5,899			5,153
Dividends paid on common and preferred stock		(1,008,962	)		(819,576	)
Noncontrolling interests contributions		9,076			105,295
Noncontrolling interests distributions		(131,085	)		(168,192	)
Settlement of noncontrolling interests		(106,866	)		(52,414	)
Tax paid for shares withheld		(21,933	)		(26,694	)
Debt and equity issuance costs paid		(15,011	)		(16,367	)
Net payments on credit facilities		(56,452	)		(490,307	)
Repurchase of and payments on debt		(3,279,771	)		(3,288,016	)
Proceeds from the issuance of debt		3,921,728			3,962,027
Net cash used in financing activities		(683,377	)		(789,091	)

Effect of foreign currency exchange rate changes on cash		(899	)		(12,206	)
Net increase (decrease) in cash and cash equivalents		681,138			(171,484	)
Cash and cash equivalents, beginning of period		343,856			447,046
Cash and cash equivalents, end of period	$	1,024,994		$	275,562

See Note 12 for information on noncash investing and financing activities and other information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands)


	September 30, 2019		December 31,
	(Unaudited)		2018
ASSETS
Investments in real estate properties	$	34,911,650	$	34,586,987
Less accumulated depreciation		5,287,640		4,656,680
Net investments in real estate properties		29,624,010		29,930,307
Investments in and advances to unconsolidated entities		5,886,820		5,745,294
Assets held for sale or contribution		799,017		622,288
Net investments in real estate		36,309,847		36,297,889

Lease right-of-use assets		437,038		-
Cash and cash equivalents		1,024,994		343,856
Other assets		1,676,306		1,775,919
Total assets	$	39,448,185	$	38,417,664

LIABILITIES AND CAPITAL
Liabilities:
Debt	$	11,459,223	$	11,089,815
Lease liabilities		432,122		-
Accounts payable and accrued expenses		808,898		760,515
Other liabilities		812,365		766,446
Total liabilities		13,512,608		12,616,776

Capital:
Partners’ capital:
General partner – preferred		68,948		68,948
General partner – common		22,448,262		22,229,145
Limited partners – common		354,246		371,281
Limited partners – Class A common		287,097		295,045
Total partners’ capital		23,158,553		22,964,419
Noncontrolling interests		2,777,024		2,836,469
Total capital		25,935,577		25,800,888
Total liabilities and capital	$	39,448,185	$	38,417,664

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues:
Rental	$	710,465		$	608,974		$	2,107,961		$	1,709,596
Strategic capital		230,467			71,142			393,416			279,800
Development management and other		1,249			2,316			3,228			7,968
Total revenues		942,181			682,432			2,504,605			1,997,364
Expenses:
Rental		180,864			147,184			550,070			423,454
Strategic capital		63,404			35,390			138,668			114,100
General and administrative		65,199			62,244			201,176			182,287
Depreciation and amortization		282,254			252,702			850,639			660,456
Other		2,294			3,391			9,643			11,145
Total expenses		594,015			500,911			1,750,196			1,391,442

Operating income before gains on real estate transactions, net		348,166			181,521			754,409			605,922
Gains on real estate transactions, net		123,314			194,058			535,717			483,430
Operating income		471,480			375,579			1,290,126			1,089,352

Other income (expense):
Earnings from unconsolidated entities, net		46,302			56,634			151,524			181,839
Interest expense		(60,244	)		(64,186	)		(179,873	)		(166,761	)
Interest and other income, net		654			1,891			12,876			9,508
Foreign currency and derivative gains, net		59,492			21,513			70,267			65,801
Losses on early extinguishment of debt, net		(13,585	)		(1,955	)		(16,086	)		(2,657	)
Total other income		32,619			13,897			38,708			87,730
Earnings before income taxes		504,099			389,476			1,328,834			1,177,082
Total income tax expense		13,086			13,956			53,230			44,612
Consolidated net earnings		491,013			375,520			1,275,604			1,132,470
Less net earnings attributable to noncontrolling interests		25,509			17,264			54,018			50,204
Net earnings attributable to controlling interests		465,504			358,256			1,221,586			1,082,266
Less preferred unit distributions		1,507			1,491			4,498			4,443
Net earnings attributable to common unitholders	$	463,997		$	356,765		$	1,217,088		$	1,077,823

Weighted average common units outstanding – Basic		641,229			583,363			641,077			554,313
Weighted average common units outstanding – Diluted		655,259			597,647			654,818			568,599

Net earnings per unit attributable to common unitholders – Basic	$	0.71		$	0.60		$	1.87		$	1.92

Net earnings per unit attributable to common unitholders – Diluted	$	0.71		$	0.60		$	1.86		$	1.90

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Consolidated net earnings	$	491,013		$	375,520		$	1,275,604		$	1,132,470
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		30,053			(10,316	)		42,471			(153,359	)
Unrealized gains (losses) on derivative contracts, net		(616	)		4,454			(6,974	)		298
Comprehensive income		520,450			369,658			1,311,101			979,409
Net earnings attributable to noncontrolling interests		(25,509	)		(17,264	)		(54,018	)		(50,204	)
Other comprehensive loss (income) attributable to noncontrolling interests		245			570			(88	)		3,775
Comprehensive income attributable to common unitholders	$	495,186		$	352,964		$	1,256,995		$	932,980

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CAPITAL

(Unaudited)

(In thousands)

Three Months Ended September 30, 2019 and 2018

	General Partner									Limited Partners												Non-
	Preferred				Common					Common						Class A Common						controlling
	Units		Amount		Units		Amount			Units			Amount			Units			Amount			Interests			Total
Balance at July 1, 2019		1,379	$	68,948		631,054	$	22,261,860			10,402		$	366,960			8,849		$	293,482		$	2,786,183		$	25,777,433
Consolidated net earnings		-		-		-		452,146			-			7,518			-			5,840			25,509			491,013
Effect of equity compensation plans		-		-		51		11,939			35			14,261			-			-			-			26,200
Capital contributions		-		-		-		-			-			-			-			-			5			5
Purchase of noncontrolling interests		-		-		-		2,557			-			-			-			-			(3,932	)		(1,375	)
Redemption of noncontrolling interests		-		-		-		1,790			-			-			-			-			(1,790	)		-
Redemption of limited partners units		-		-		638		20,373			(468	)		(22,092	)		(236	)		(7,888	)		-			(9,607	)
Foreign currency translation gains (losses), net		-		-		-		29,469			-			457			-			372			(245	)		30,053
Unrealized losses on derivative contracts, net		-		-		-		(606	)		-			(5	)		-			(5	)		-			(616	)
Reallocation of capital		-		-		-		5,333			-			(6,199	)		-			866			-			-
Distributions ($0.53 per common unit) and other		-		-		-		(336,599	)		-			(6,654	)		-			(5,570	)		(28,706	)		(377,529	)
Balance at September 30, 2019		1,379	$	68,948		631,743	$	22,448,262			9,969		$	354,246			8,613		$	287,097		$	2,777,024		$	25,935,577

Balance at July 1, 2018	1,379	$	68,948	533,303	$	15,569,622		7,473		$	218,162		8,849	$	245,596		$	2,624,175		$	18,726,503
Consolidated net earnings	-		-	-		347,836		-			5,381		-		5,039			17,264			375,520
Effect of equity compensation plans	-		-	40		12,790		-			13,314		-		-			-			26,104
DCT Transaction, net of insurance costs	-		-	96,179		6,322,629		3,551			233,472		-		-			59,814			6,615,915
Capital contributions	-		-	-		-		-			-		-		-			79,121			79,121
Redemption of noncontrolling interests	-		-	-		(1,738	)	-			-		-		-			(1,604	)		(3,342	)
Redemption of limited partners units	-		-	-		-		(386	)		(25,304	)	-		-			-			(25,304	)
Foreign currency translation gains (losses), net	-		-	-		(9,403	)	-			(551	)	-		208			(570	)		(10,316	)
Unrealized gains on derivative contracts, net	-		-	-		4,324		-			62		-		68			-			4,454
Reallocation of capital	-		-	-		19,923		-			(67,232	)	-		47,309			-			-
Distributions ($0.48 per common unit) and other	-		-	-		(304,332	)	-			(6,153	)	-		(5,723	)		(34,792	)		(351,000	)
Balance at September 30, 2018	1,379	$	68,948	629,522	$	21,961,651		10,638		$	371,151		8,849	$	292,497		$	2,743,408		$	25,437,655

Nine Months Ended September 30, 2019 and 2018

	General Partner									Limited Partners												Non-
	Preferred				Common					Common						Class A Common						controlling
	Units		Amount		Units		Amount			Units			Amount			Units			Amount			Interests			Total
Balance at January 1, 2019		1,379	$	68,948		629,616	$	22,229,145			10,516		$	371,281			8,849		$	295,045		$	2,836,469		$	25,800,888
Consolidated net earnings		-		-		-		1,185,968			-			20,095			-			15,523			54,018			1,275,604
Effect of equity compensation plans		-		-		942		22,490			1,493			51,582			-			-			-			74,072
Capital contributions		-		-		-		-			-			-			-			-			9,076			9,076
Purchase of noncontrolling interests		-		-		-		2,557			-			-			-			-			(3,932	)		(1,375	)
Redemption of noncontrolling interests		-		-		-		(8,045	)		-			-			-			-			(13,048	)		(21,093	)
Redemption of limited partners units		-		-		1,185		39,686			(2,040	)		(116,196	)		(236	)		(7,888	)		-			(84,398	)
Contribution to Brazil venture		-		-		-		-			-			-			-			-			(12,630	)		(12,630	)
Foreign currency translation gains, net		-		-		-		41,206			-			650			-			527			88			42,471
Unrealized losses on derivative contracts, net		-		-		-		(6,781	)		-			(106	)		-			(87	)		-			(6,974	)
Reallocation of capital		-		-		-		(48,985	)		-			47,993			-			992			-			-
Distributions ($1.59 per common unit) and other		-		-		-		(1,008,979	)		-			(21,053	)		-			(17,015	)		(93,017	)		(1,140,064	)
Balance at September 30, 2019		1,379	$	68,948		631,743	$	22,448,262			9,969		$	354,246			8,613		$	287,097		$	2,777,024		$	25,935,577

Balance at January 1, 2018	1,379	$	68,948	532,186	$	15,562,210		5,656		$	165,401		8,894		$	248,940		$	2,660,242		$	18,705,741
Consolidated net earnings	-		-	-		1,051,301		-			14,749		-			16,216			50,204			1,132,470
Effect of equity compensation plans	-		-	1,157		21,636		2,057			38,149		-			-			-			59,785
DCT Transaction, net of issuance costs				96,179		6,322,629		3,551			233,472								59,814			6,615,915
Capital contributions	-		-	-		-		-			-		-			-			117,095			117,095
Redemption of noncontrolling interests	-		-	-		(4,530	)	-			-		-			-			(4,761	)		(9,291	)
Redemption of limited partners units	-		-	-		-		(626	)		(40,321	)	(45	)		(2,802	)		-			(43,123	)
Foreign currency translation losses, net	-		-	-		(145,196	)	-			(2,454	)	-			(1,934	)		(3,775	)		(153,359	)
Unrealized gains on derivative contracts, net	-		-	-		289		-			5		-			4			-			298
Reallocation of capital	-		-	-		(27,004	)	-			(22,295	)	-			49,299			-			-
Distributions ($1.44 per common unit) and other	-		-	-		(819,684	)	-			(15,555	)	-			(17,226	)		(135,411	)		(987,876	)
Balance at September 30, 2018	1,379	$	68,948	629,522	$	21,961,651		10,638		$	371,151		8,849		$	292,497		$	2,743,408		$	25,437,655

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended
	September 30,
	2019			2018
Operating activities:
Consolidated net earnings	$	1,275,604		$	1,132,470
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(77,157	)		(45,372	)
Equity-based compensation awards		72,467			58,029
Depreciation and amortization		850,639			660,456
Earnings from unconsolidated entities, net		(151,524	)		(181,839	)
Operating distributions from unconsolidated entities		269,992			250,763
Decrease (increase) in operating receivables from unconsolidated entities		(99,762	)		5,933
Amortization of debt discounts and debt issuance costs, net		12,642			8,533
Gains on real estate transactions, net		(535,717	)		(483,430	)
Unrealized foreign currency and derivative gains, net		(51,373	)		(73,120	)
Losses on early extinguishment of debt, net		16,086			2,657
Deferred income tax expense (benefit)		9,769			(1,079	)
Increase in accounts receivable, lease right-of-use assets and other assets		(25,849	)		(77,275	)
Increase in accounts payable and accrued expenses, lease liabilities and other liabilities		81,843			17,192
Net cash provided by operating activities		1,647,660			1,273,918
Investing activities:
Real estate development		(1,271,656	)		(1,332,923	)
DCT Transaction, net of cash acquired		-			(46,268	)
Real estate acquisitions		(660,836	)		(508,655	)
Tenant improvements and lease commissions on previously leased space		(128,413	)		(91,194	)
Property improvements		(89,132	)		(62,473	)
Proceeds from dispositions and contributions of real estate properties		1,769,296			1,307,534
Investments in and advances to unconsolidated entities		(256,727	)		(117,005	)
Return of investment from unconsolidated entities		360,106			175,600
Proceeds from repayment of notes receivable backed by real estate		-			34,260
Proceeds from the settlement of net investment hedges		23,640			3,370
Payments on the settlement of net investment hedges		(28,524	)		(6,351	)
Net cash used in investing activities		(282,246	)		(644,105	)
Financing activities:
Proceeds from issuance of common partnership units in exchange for contributions from Prologis, Inc.		5,899			5,153
Distributions paid on common and preferred units		(1,047,030	)		(852,357	)
Noncontrolling interests contributions		9,076			105,295
Noncontrolling interests distributions		(93,017	)		(135,411	)
Settlement of noncontrolling interests		(22,468	)		(9,291	)
Redemption of common limited partnership units		(84,398	)		(43,123	)
Tax paid for shares of the Parent withheld		(21,933	)		(26,694	)
Debt and equity issuance costs paid		(15,011	)		(16,367	)
Net payments on credit facilities		(56,452	)		(490,307	)
Repurchase of and payments on debt		(3,279,771	)		(3,288,016	)
Proceeds from the issuance of debt		3,921,728			3,962,027
Net cash used in financing activities		(683,377	)		(789,091	)

Effect of foreign currency exchange rate changes on cash		(899	)		(12,206	)
Net increase (decrease) in cash and cash equivalents		681,138			(171,484	)
Cash and cash equivalents, beginning of period		343,856			447,046
Cash and cash equivalents, end of period	$	1,024,994		$	275,562

See Note 12 for information on noncash investing and financing activities and other information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC. AND PROLOGIS, L.P.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. GENERAL

Business. Prologis, Inc. (or the “Parent”) commenced operations as a fully integrated real estate company in 1997, elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and believes the current organization and method of operation will enable it to maintain its status as a REIT. The Parent is the general partner of Prologis, L.P. (or the “Operating Partnership” or “OP”). Through the OP, we are engaged in the ownership, acquisition, development and management of logistics facilities with a focus on key markets in 19 countries on four continents. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We maintain a significant level of ownership in these co-investment ventures, which may be consolidated or unconsolidated based on our level of control of the entity. Our current business strategy consists of two operating business segments: Real Estate Operations and Strategic Capital. Our Real Estate Operations segment represents the ownership and development of logistics properties. Our Strategic Capital segment represents the management of unconsolidated co-investment ventures and other ventures. See Note 11 for further discussion of our business segments. Unless otherwise indicated, the Notes to the Consolidated Financial Statements apply to both the Parent and the OP. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and OP collectively.

For each share of preferred or common stock the Parent issues, the OP issues a corresponding preferred or common partnership unit, as applicable, to the Parent in exchange for the contribution of the proceeds from the stock issuance. At September 30, 2019, the Parent owned a 97.22% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.78% common limited partnership interests, which include 8.6 million Class A common limited partnership units (“Class A Units”) in the OP, are owned by unaffiliated investors and certain current and former directors and officers of the Parent. Each partner’s percentage interest in the OP is determined based on the number of OP units held, including the number of OP units into which Class A Units are convertible, compared to total OP units outstanding at each period end and is used as the basis for the allocation of net income or loss to each partner. At the end of each reporting period, a capital adjustment is made in the OP to reflect the appropriate ownership interest for each of the common unitholders. These adjustments are reflected in the line items Reallocation of Equity in the Consolidated Statements of Equity of the Parent and Reallocation of Capital in the Consolidated Statements of Capital of the OP.

As the sole general partner of the OP, the Parent has complete responsibility and discretion in the day-to-day management and control of the OP and we operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As general partner with control of the OP, the Parent is the primary beneficiary and therefore consolidates the OP. Because the Parent’s only significant asset is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

Basis of Presentation. The accompanying Consolidated Financial Statements are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and are presented in our reporting currency, the U.S. dollar. References herein to the translation of activity for significant nonrecurring transactions are at the rate in effect at the date of the transaction. All material intercompany transactions with consolidated entities have been eliminated.

The accompanying unaudited interim financial information has been prepared according to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. Our management believes that the disclosures presented in these financial statements are adequate to make the information presented not misleading. In our opinion, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for both the Parent and the OP for the reported periods have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The accompanying unaudited interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC, and other public information.

Reclassifications. Upon adoption of the new lease standard, rental recoveries for 2018 have been reclassified to Rental Revenues in the Consolidated Statements of Income to conform to the 2019 financial statement presentation.

New Accounting Pronouncements.

New Accounting Standards Adopted

Leases. In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (“ASU”) that provided the principles for the recognition, measurement, presentation and disclosure of leases. The guidance amended the existing accounting standards, including the requirement that lessees recognize right-of-use assets and lease liabilities for leases with terms greater than twelve months in the Consolidated Balance Sheets. Additional guidance and targeted improvements to the February 2016 ASU were made through the issuance of supplementary ASUs in July 2018, December 2018 and March 2019. We refer to all four ASUs collectively as the “new lease standard.”

We adopted the new lease standard on January 1, 2019 and applied it to leases that were in place on the effective date. Results for reporting periods beginning January 1, 2019 are presented under the new lease standard.

We elected the package of practical expedients and were not required to reassess the following upon adoption: (i) whether an expired or existing contract met the definition of a lease; (ii) the lease classification at January 1, 2019 for existing leases; and (iii) whether leasing costs previously capitalized as initial direct costs would continue to be amortized. This allowed us to continue to account for our existing ground and office space leases as operating leases, however, any new or renewed ground leases after January 1, 2019 may be classified as financing leases unless they meet certain conditions to be considered a lease involving land owned by a government unit or authority. Upon adoption, we did not have an adjustment to the opening balance of retained earnings due to the election of these practical expedients.

•

As a lessor. The new lease standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Initial direct costs include the salaries and related costs for employees directly working on leasing activities. Prior to January 1, 2019, these costs were capitalizable in Other Assets and therefore the new lease standard resulted in certain of these costs being expensed as incurred through Rental Expenses. During the three and nine months ended September 30, 2018, we capitalized $5.2 million and $15.7 million, respectively, of internal costs related to our leasing activities. We will continue to amortize initial direct costs capitalized prior to January 1, 2019.

We adopted the practical expedient that allowed us to not separate expenses reimbursed by our customers (“rental recoveries”) from the associated rental revenue if certain criteria were met. We assessed these criteria and concluded that the timing and straight-line pattern of transfer to the lessee for rental revenue and the associated rental recoveries are the same and as our leases qualify as operating leases, we accounted for and presented rental revenue and rental recoveries as a single component under Rental Revenues in our Consolidated Statements of Income for the three and nine months ended September 30, 2019. As a result of our adoption of this practical expedient, we presented $476.8 million and $1.3 billion of rental revenue and $132.1 million and $378.3 million of rental recoveries as a single component in the Consolidated Statements of Income for the three and nine months ended September 30, 2018, respectively, for both rental revenue and rental recoveries, to conform to the 2019 new presentation.

•	As a lessee. At January 1, 2019 we recognized Lease Right-of-Use (“ROU”) Assets and Lease Liabilities, principally for our ground and office space leases, in which we are the lessee.

See Note 3 for further disclosure around our adoption of the new lease standard.

Derivatives and Hedging. In August 2017, the FASB issued an ASU that simplified the application of hedge accounting guidance in current GAAP and improved the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its consolidated financial statements. Among the simplification updates, the ASU eliminated the requirement in current GAAP to separately recognize periodic hedge ineffectiveness. Mismatches between the changes in value of the hedged item and hedging instrument may still occur but they will no longer be separately reported. The ASU required the presentation of the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. We adopted the ASU on January 1, 2019 on a modified retrospective basis and there was no adjustment to the opening balance of retained earnings.

NOTE 2. DCT TRANSACTION

We acquired DCT Industrial Trust Inc. and DCT Industrial Operating Partnership LP (collectively “DCT”) on August 22, 2018 (“DCT Transaction”).

The DCT Transaction was completed for $8.5 billion through the issuance of equity based on the closing price of Prologis’ common stock on August 21, 2018 and the assumption of debt. In connection with the transaction, each issued and outstanding share or unit held by a DCT stockholder or unitholder was converted automatically into 1.02 shares of Prologis common stock or common units of Prologis, L.P., respectively, including shares and units under DCT’s equity incentive plan that became fully vested at closing.

Through the DCT Transaction, we acquired a portfolio of logistics real estate assets that consisted of 408 operating properties, aggregating 68.0 million square feet, 10 properties under development, aggregating 2.8 million square feet and 305 acres of land with build-out potential of 4.5 million square feet.

The aggregate equity consideration of approximately $6.6 billion is calculated below (in millions, except price per share):

Number of Prologis shares and units issued upon conversion of DCT shares and units at August 21, 2018		99.73
Multiplied by price of Prologis' common stock on August 21, 2018	$	65.75
Fair value of Prologis shares and units issued	$	6,557

We accounted for the DCT Transaction as an asset acquisition and as a result the transaction costs of $50.0 million were capitalized to the basis of the acquired properties. Transaction costs include investment banker advisory fees, legal fees and other costs.

Under acquisition accounting, the total purchase price was allocated to the DCT net tangible and identifiable intangible assets acquired and liabilities assumed based on their relative fair values as follows (in millions):

Net investments in real estate	$	8,362
Intangible assets, net of intangible liabilities		292
Cash and other assets		24
Debt		(1,863	)
Accounts payable, accrued expenses and other liabilities		(143	)
Noncontrolling interests		(65	)
Total purchase price, including transaction costs	$	6,607

NOTE 3. REAL ESTATE

Investments in real estate properties consisted of the following (dollars and square feet in thousands):

	Square Feet				Number of Buildings
	Sep 30,		Dec 31,		Sep 30,		Dec 31,		Sep 30,		Dec 31,
	2019		2018		2019		2018		2019		2018
Operating properties:
Buildings and improvements		354,241		354,762		1,873		1,858	$	22,854,091	$	22,587,267
Improved land										8,169,577		8,044,888
Development portfolio, including land costs:
Prestabilized		8,522		8,709		31		30		777,601		828,064
Properties under development		19,841		27,715		57		70		1,017,380		1,314,737
Land ⁽¹⁾										1,204,110		1,192,220
Other real estate investments ⁽²⁾										888,891		619,811
Total investments in real estate properties										34,911,650		34,586,987
Less accumulated depreciation										5,287,640		4,656,680
Net investments in real estate properties									$	29,624,010	$	29,930,307

(1)	At September 30, 2019 and December 31, 2018, our land is comprised of 4,620 and 4,929 acres, respectively.

(2)

Included in other real estate investments were: (i) non-logistics real estate; (ii) land parcels that are ground leased to third parties; (iii) our corporate headquarters; (iv) costs related to future development projects, including purchase options on land; (v) earnest money deposits associated with potential acquisitions; and (vi) infrastructure costs related to projects we are developing on behalf of others.

Acquisitions

The following table summarizes our real estate acquisition activity, excluding the DCT Transaction as discussed in Note 2 (dollars and square feet in thousands, except for acres of land):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Number of operating properties		2		5		15		8
Square feet of operating properties		80		523		1,083		1,406
Acres of land		186		166		651		974
Acquisition cost of net investments in real estate properties⁽¹⁾	$	184,077	$	183,484	$	701,264	$	497,783

(1)	Includes the acquisition cost of properties classified in other real estate investments of $58.3 million and $195.5 million for the three and nine months ended September 30, 2019, respectively, and $5.0 million during both the three and nine months ended September 30, 2018.

On July 15, 2019, we entered into a merger agreement, subsequently amended and restated on August 20, 2019, to acquire the wholly-owned real estate assets of Industrial Property Trust Inc. (“IPT”) for approximately $4.0 billion in a cash transaction, including the

assumption and repayment of debt. The transaction, currently expected to close in January 2020, is subject to the approval of IPT stockholders and other customary closing conditions. We plan to split the $4.0 billion portfolio equally between our two U.S. co-investment ventures and expect our investment to be approximately $1.3 billion, which we will fund with cash and debt.

Dispositions

The following table summarizes our gains on real estate transactions, net (dollars and square feet in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Contributions to unconsolidated entities
Number of properties		3		13		30		24
Square feet		1,448		4,192		13,770		8,434
Net proceeds ^{(1) (2)}	$	172,177	$	385,001	$	1,658,886	$	1,050,740
Gains on contributions, net ^{(1) (2)}	$	50,218	$	129,222	$	308,908	$	330,475
Dispositions to third parties
Number of properties		31		6		33		24
Square feet		4,423		1,827		5,093		7,269
Net proceeds ⁽¹⁾	$	391,485	$	147,408	$	446,025	$	549,530
Gains on dispositions, net ⁽¹⁾	$	73,096	$	64,836	$	91,787	$	152,955

Total gains on contributions and dispositions, net	$	123,314	$	194,058	$	400,695	$	483,430
Gain on partial redemption of investment in an unconsolidated co-investment venture ⁽³⁾		-		-		135,022		-
Total gains on real estate transactions, net ⁽⁴⁾	$	123,314	$	194,058	$	535,717	$	483,430

(1)	Includes the contribution and disposition of land parcels.

(2)

In January 2019, we formed Prologis Brazil Logistics Venture (“PBLV”), a Brazilian unconsolidated co-investment venture, with one partner. We contributed an initial portfolio of real estate properties to PBLV consisting of 14 operating properties totaling 6.9 million square feet and 371 acres of land. We received cash proceeds and units for our 20% equity interest.

(3)	In February 2019, we redeemed a portion of our investment in a European unconsolidated co-investment venture.

(4)

Includes gains upon the sale of land and properties, that were developed with the intent to contribute or sell upon completion, of $63.9 million and $303.3 million during the three and nine months ended September 30, 2019, respectively, and gains of $108.0 million and $329.3 million, during the three and nine months ended September 30, 2018, respectively.

Leases

As a Lessor

We lease our operating properties to customers under agreements that are classified as operating leases. We recognize the total minimum lease payments provided for under the leases on a straight-line basis over the lease term. Generally, under the terms of our leases, the majority of our rental expenses, including common area maintenance, real estate taxes and insurance, are recovered from our customers. We record amounts reimbursed by customers in the period that the applicable expenses are incurred. The reimbursements are recognized in Rental Revenues in the Consolidated Statements of Income as we are the primary obligor with respect to purchasing and selecting goods and services from third-party vendors and bearing the associated credit risk. We perform credit analyses of our customers prior to the execution of our leases and continue these analyses on an ongoing basis in order to ensure the collectability of rental revenue.

The following table summarizes the minimum lease payments due from our customers on leases with lease periods greater than one year for space in our operating properties, prestabilized and under development properties, leases of land subject to ground leases and assets held for sale or contribution at September 30, 2019 (in thousands):

2019	$	538,879
2020		2,074,883
2021		1,823,249
2022		1,510,617
2023		1,218,684
Thereafter		3,911,733
Total	$	11,078,045

These amounts do not reflect future rental revenue from the renewal or replacement of existing leases and exclude reimbursements of operating expenses and rental increases that are not fixed.

As a Lessee

We have approximately 130 ground and office space leases, which qualify as operating leases, with remaining lease terms of 1 to 89 years at September 30, 2019.

The following table summarizes the fixed, future minimum rental payments, excluding variable costs, which are discounted by our incremental borrowing rates to calculate the lease liabilities of our operating leases in which we are the lessee and for which the lease has commenced (in thousands):

	September 30, 2019		December 31, 2018
2019	$	12,565	$	38,769
2020		46,715		38,267
2021		48,108		34,307
2022		41,314		32,312
2023		35,887		30,180
Thereafter		674,384		670,147
Total undiscounted rental payments		858,973	$	843,982
Less imputed interest		426,851
Total lease liabilities	$	432,122

The weighted average remaining lease term for our operating leases was 30 and 28 years at September 30, 2019 and December 31, 2018, respectively. We do not include renewal options in the lease term for calculating the lease liability unless we are reasonably certain we will exercise the option, or the lessor has the sole ability to exercise the option. The weighted average incremental borrowing rate was 3.8% at September 30, 2019. We assigned a collateralized interest rate to each lease based on the term of the lease and the currency in which the lease is denominated.

NOTE 4. UNCONSOLIDATED ENTITIES

Summary of Investments

We have investments in entities through a variety of ventures. We co-invest in entities that own multiple properties with partners and investors and we provide asset and property management services to these entities, which we refer to as co-investment ventures. These entities may be consolidated or unconsolidated, depending on the structure, our partner’s participation and other rights and our level of control of the entity. This note details our investments in unconsolidated co-investment ventures, which are related parties and are accounted for using the equity method of accounting. See Note 7 for more detail regarding our consolidated investments that are not wholly owned.

We also have other ventures, generally with one partner and that we do not manage, which we account for using the equity method. We refer to our investments in all entities accounted for using the equity method, both unconsolidated co-investment ventures and other ventures, collectively, as unconsolidated entities.

The following table summarizes our investments in and advances to our unconsolidated entities (in thousands):

	September 30,		December 31,
	2019		2018
Unconsolidated co-investment ventures	$	5,528,873	$	5,407,838
Other ventures		357,947		337,456
Total	$	5,886,820	$	5,745,294

Unconsolidated Co-Investment Ventures

The following table summarizes the Strategic Capital Revenues we recognized in the Consolidated Statements of Income related to our unconsolidated co-investment ventures (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Recurring fees	$	67,888	$	58,946	$	195,542	$	171,508
Transactional fees		14,094		11,798		41,272		39,250
Promote revenue ⁽¹⁾		148,191		-		155,474		68,218
Total strategic capital revenues from unconsolidated co-investment ventures ⁽²⁾	$	230,173	$	70,744	$	392,288	$	278,976

(1)	Includes promote revenue earned from an unconsolidated co-investment venture in Europe in September 2019 and China in March 2018, respectively.

(2)	These amounts exclude strategic capital revenues from other ventures.

The following table summarizes the key property information, financial position and operating information of our unconsolidated co-investment ventures (not our proportionate share) and the amounts we recognized in the Consolidated Financial Statements related to our unconsolidated co-investment ventures (dollars and square feet in millions):

	U.S.						Other Americas						Europe						Asia						Total
As of:	Sep 30, 2019			Dec 31, 2018			Sep 30, 2019⁽¹⁾			Dec 31, 2018			Sep 30, 2019			Dec 31, 2018			Sep 30, 2019			Dec 31, 2018			Sep 30, 2019			Dec 31, 2018
Key property information:
Ventures		1			1			2			2			3			3			2			2			8			8
Operating properties		595			566			213			209			715			669			141			125			1,664			1,569
Square feet		95			91			44			39			174			159			58			51			371			340

Financial position:
Total assets ($)		7,670			7,303			2,685			2,137			14,010			13,028			7,921			7,089			32,286			29,557
Third-party debt ($)		2,132			2,094			769			838			2,980			2,548			3,170			2,668			9,051			8,148
Total liabilities ($)		2,481			2,350			823			862			4,231			3,615			3,545			3,006			11,080			9,833

Our investment balance ($) ⁽²⁾		1,424			1,457			656			554			2,777			2,784			672			613			5,529			5,408
Our weighted average ownership ⁽³⁾		26.3	%		27.4	%		39.1	%		44.4	%		30.0	%		33.2	%		15.1	%		15.1	%		26.3	%		28.3	%

	U.S.						Other Americas						Europe						Asia						Total
Operating Information:	Sep 30, 2019			Sep 30, 2018			Sep 30, 2019⁽¹⁾			Sep 30, 2018			Sep 30, 2019			Sep 30, 2018			Sep 30, 2019			Sep 30, 2018			Sep 30, 2019			Sep 30, 2018
For the three months ended:
Total revenues ($)		187			168			66			54			276			272			134			117			663			611
Net earnings ($)		38			28			18			18			70			97			27			21			153			164

Our earnings from unconsolidated co-investment ventures, net ($)		11			8			6			7			22			37			4			4			43			56

For the nine months ended:
Total revenues ($)		546			504			200			162			815			832			378			339			1,939			1,837
Net earnings ($)		90			65			73			51			225			300			89			69			477			485

Our earnings from unconsolidated co-investment ventures, net ($)		27			20			27			21			74			111			14			13			142			165

(1)	PBLV and our other Brazilian joint ventures are combined as one venture for the purpose of this table.

(2)

Prologis’ investment balance is presented at our adjusted basis derived from the ventures’ U.S. GAAP information. The difference between our ownership interest of a venture’s equity and our investment balance at September 30, 2019 and December 31, 2018, results principally from four types of transactions: (i) deferred gains from the contribution of property to a venture prior to January 1, 2018; (ii) recording additional costs associated with our investment in the venture; (iii) receivables, principally for fees and promotes ($258.0 million and $166.7 million, respectively); and (iv) customer security deposits retained subsequent to property contributions to Nippon Prologis REIT, Inc. ($134.4 million and $122.0 million, respectively).

(3)	Represents our weighted average ownership interest based on each entity’s contribution of total assets, before depreciation, net of other liabilities.

Equity Commitments Related to Certain Unconsolidated Co-Investment Ventures

At September 30, 2019, our remaining equity commitments were $457.8 million, principally for Prologis China Logistics Venture and Prologis Targeted U.S. Logistics Fund. The equity commitments expire from 2020 to 2026.

NOTE 5. ASSETS HELD FOR SALE OR CONTRIBUTION

We have investments in certain real estate properties that met the criteria to be classified as held for sale or contribution at September 30, 2019 and December 31, 2018. At the time of classification, these properties were expected to be sold to third parties or were recently stabilized and expected to be contributed to unconsolidated co-investment ventures within twelve months. The amounts included in Assets Held for Sale or Contribution represented real estate investment balances and the related assets and liabilities for each property.

Assets held for sale or contribution consisted of the following (dollars and square feet in thousands):

	September 30,		December 31,
	2019		2018
Number of operating properties		41		57
Square feet		9,675		8,236
Total assets held for sale or contribution	$	799,017	$	622,288
Total liabilities associated with assets held for sale or contribution – included in Other Liabilities	$	31,787	$	12,972

NOTE 6. DEBT

All debt is incurred by the OP or its consolidated subsidiaries.

The following table summarizes our debt (dollars in thousands):

	September 30, 2019					December 31, 2018
	Weighted Average Interest Rate ⁽¹⁾			Amount Outstanding ⁽²⁾		Weighted Average Interest Rate⁽¹⁾			Amount Outstanding ⁽²⁾
Credit facilities		-		$	-		3.4	%	$	50,500
Senior notes		2.4	%		9,429,837		2.7	%		8,304,147
Term loans and unsecured other		0.9	%		1,445,784		1.8	%		1,921,428
Secured mortgage		3.7	%		583,602		5.1	%		813,740
Total		2.3	%	$	11,459,223		2.7	%	$	11,089,815

(1)

The interest rates presented represent the effective interest rates (including amortization of debt issuance costs and the noncash premiums or discounts) at the end of the period for the debt outstanding and include the impact of undesignated and designated interest rate swaps, which effectively fix the interest rate on our variable rate debt.

(2)	We borrow in the functional currencies of the countries where we invest. Included in the outstanding balances were borrowings denominated in the following currencies:

	September 30, 2019					December 31, 2018
	Amount Outstanding		% of Total			Amount Outstanding		% of Total
British pound sterling	$	610,963		5.3	%	$	635,972		5.8	%
Canadian dollar		274,275		2.4	%		266,337		2.4	%
Euro		5,941,549		51.9	%		4,893,693		44.1	%
Japanese yen		2,108,643		18.4	%		1,951,844		17.6	%
U.S. dollar		2,523,793		22.0	%		3,341,969		30.1	%
Total	$	11,459,223				$	11,089,815

Credit Facilities

In January 2019, we recast our global senior credit facility (the “Global Facility”), under which we may draw in British pounds sterling, Canadian dollars, euro, Japanese yen, Mexican pesos and U.S. dollars on a revolving basis up to $3.5 billion (subject to currency fluctuations). Pricing under the Global Facility, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the OP. The Global Facility is scheduled to mature in January 2023; however, we may extend the maturity date for six months on two occasions, subject to the satisfaction of certain conditions and payment of extension fees. We have the ability to increase the Global Facility to $4.5 billion, subject to currency fluctuations and obtaining additional lender commitments.

We also have a Japanese yen revolver (the “Revolver”) with availability of ¥50.0 billion ($463.0 million at September 30, 2019). We have the ability to increase the Revolver to ¥65.0 billion ($601.9 million at September 30, 2019), subject to obtaining additional lender commitments. Pricing under the Revolver, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the OP. The Revolver is scheduled to mature in February 2021; however, we may extend the maturity date for one year, subject to the satisfaction of certain conditions and payment of extension fees.

We refer to the Global Facility and the Revolver, collectively, as our “Credit Facilities.”

The following table summarizes information about our Credit Facilities at September 30, 2019 (in millions):


Aggregate lender commitments	$	3,920
Less:
Borrowings outstanding		-
Outstanding letters of credit		30
Current availability	$	3,890

Senior Notes

In March 2019, we completed a private placement for ¥10.0 billion ($90.5 million) of senior notes with a stated interest rate of 1.2%, maturing in March 2039.

In September 2019, we issued three series of senior notes for a total of €1.8 billion ($2.0 billion), bearing a weighted-average fixed interest rate of 0.7% and maturing in September 2027 through 2049. We utilized the proceeds to pay off senior notes of €600.0 million ($656.3 million) bearing an interest rate of 1.4% and maturing in October 2020 and $498.7 million on our multi-currency term loan (the “2017 Term Loan”). We anticipate using the remaining proceeds to repay additional borrowings in the next twelve months and for general corporate purposes.

Term Loans

In January 2019, we entered into two unsecured Japanese yen term loans for a total of ¥15.0 billion ($137.1 million) that bear interest of Yen LIBOR plus 0.5% to 0.6% and are scheduled to mature in January 2028 and 2030.

In March 2019, we entered into an unsecured Japanese yen term loan agreement (the “March 2019 Yen Term Loan”) under which we can draw Japanese yen in an aggregate amount not to exceed ¥85.0 billion ($787.1 million at September 30, 2019). The March 2019 Yen Term Loan currently bears interest at Yen LIBOR plus 0.4% and is scheduled to mature in March 2026. We have the ability to increase the March 2019 Yen Term Loan to ¥120.0 billion ($1.1 billion at September 30, 2019), subject to obtaining additional lender commitments. Pricing under the March 2019 Yen Term Loan, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the OP.

We repaid the outstanding balance of ¥100.0 billion ($897.4 million) on our 2016 Japanese yen term loan, which bore interest at Yen LIBOR plus 0.7% and had two separate tranches of debt scheduled to mature in August 2022 and 2023, with the proceeds from the March 2019 Yen Term Loan during the first quarter of 2019.

During the nine months ended September 30, 2019 and 2018, we paid down $1.3 billion and $1.5 billion, and reborrowed $777.2 million and $1.4 billion, respectively, on the 2017 Term Loan.

Long-Term Debt Maturities

Scheduled principal payments due on our debt for the remainder of 2019 and for each year through the period ended December 31, 2023, and thereafter were as follows at September 30, 2019 (in thousands):

	Unsecured
	Senior			Term Loans			Secured
Maturity	Notes			and Other			Mortgage			Total
2019 ⁽¹⁾	$	-		$	11,195		$	2,214		$	13,409
2020 ⁽¹⁾		435,560			-			34,463			470,023
2021		762,230			-			96,111			858,341
2022		762,230			-			12,149			774,379
2023		850,000			128,701			38,608			1,017,309
Thereafter		6,696,455			1,314,940			402,323			8,413,718
Subtotal		9,506,475			1,454,836			585,868			11,547,179
Premiums (discounts), net		(46,629	)		-			609			(46,020	)
Debt issuance costs, net		(30,009	)		(9,052	)		(2,875	)		(41,936	)
Total	$	9,429,837		$	1,445,784		$	583,602		$	11,459,223

(1)	We expect to repay the amounts maturing in the next twelve months with the remaining proceeds from the senior notes issuance in September 2019 discussed above, cash generated from operations, proceeds from dispositions of real estate properties, or as necessary, with additional borrowings.

Losses on Early Extinguishment of Debt, Net

During the nine months ended September 30, 2019, we recognized $16.1 million in losses on early extinguishment of debt, primarily from the redemption of €600.0 million ($656.3 million) of senior notes prior to maturity. During the nine months ended September 30, 2018, we recognized $2.7 million in losses, primarily due to the extinguishment of $1.8 billion of debt assumed in the DCT Transaction. The loss associated with the DCT Transaction represented the excess of the prepayment penalties of $48.7 million over the $46.7 million premium recorded upon assumption of the debt.

Financial Debt Covenants

We have $9.4 billion of senior notes and $1.4 billion of term loans outstanding at September 30, 2019 that were subject to certain financial covenants under their related indentures. We are also subject to financial covenants under our Credit Facilities and certain secured mortgage debt. At September 30, 2019, we were in compliance with all of our financial debt covenants.

Guarantee of Finance Subsidiary Debt

In 2018, we formed finance subsidiaries as part of our operations in Europe (Prologis Euro Finance LLC), Japan (Prologis Yen Finance LLC) and the United Kingdom (Prologis Sterling Finance LLC).

These entities are 100% indirectly owned by the OP and all unsecured debt issued or to be issued by each entity is or will be fully and unconditionally guaranteed by the OP. There are no restrictions or limits on the OP’s ability to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 3-10 of Regulation S-X, the separate financial statements of Prologis Euro Finance LLC, Prologis Yen Finance LLC and Prologis Sterling Finance LLC are not provided.

NOTE 7. NONCONTROLLING INTERESTS

Prologis, L.P.

We report noncontrolling interests related to several entities we consolidate but of which we do not own 100% of the equity. These entities include two real estate partnerships that have issued limited partnership units to third parties. Depending on the specific partnership agreements, these limited partnership units are redeemable for cash or, at our option, into shares of the Parent’s common stock, generally at a rate of one share of common stock to one limited partnership unit. We also consolidate certain entities in which we do not own 100% of the equity but the equity of these entities is not exchangeable into our common stock.

Prologis, Inc.

The noncontrolling interests of the Parent include the noncontrolling interests described above for the OP, as well as the limited partnership units in the OP that are not owned by the Parent.

The following table summarizes our ownership percentages and noncontrolling interests and the consolidated entities’ total assets and liabilities (dollars in thousands):

	Our Ownership Percentage						Noncontrolling Interests				Total Assets				Total Liabilities
	Sep 30, 2019			Dec 31, 2018			Sep 30, 2019		Dec 31, 2018		Sep 30, 2019		Dec 31, 2018		Sep 30, 2019		Dec 31, 2018
Prologis U.S. Logistics Venture		55.0	%		55.0	%	$	2,667,395	$	2,697,095	$	6,034,228	$	6,072,087	$	116,752	$	92,782
Other consolidated entities⁽¹⁾	various			various				109,629		139,374		1,019,943		1,045,202		91,296		53,145
Prologis, L.P.								2,777,024		2,836,469		7,054,171		7,117,289		208,048		145,927
Limited partners in Prologis, L.P. ^{(2) (3}⁾								641,343		666,326		-		-		-		-
Prologis, Inc.							$	3,418,367	$	3,502,795	$	7,054,171	$	7,117,289	$	208,048	$	145,927

(1)

Includes our two partnerships that have issued limited partnership units to third parties, as discussed above, along with various other consolidated entities. The limited partnership units outstanding at September 30, 2019 and December 31, 2018 were exchangeable into cash or, at our option, 0.3 million and 0.7 million shares of the Parent’s common stock, respectively.

(2)	We had 8.6 million and 8.8 million Class A Units that were convertible into 8.1 million and 8.4 million limited partnership units of the OP at September 30, 2019 and December 31, 2018, respectively.

(3)

At September 30, 2019 and December 31, 2018, excluding the Class A Units, there were limited partnership units in the OP that were exchangeable into cash or, at our option, 6.3 million and 7.2 million shares of the Parent’s common stock, respectively. Also included are the vested OP Long-Term Incentive Plan Units (“LTIP Units”) associated with our long-term compensation plan. See further discussion of LTIP Units in Note 8.

NOTE 8. LONG-TERM COMPENSATION

Equity-Based Compensation Plans and Programs

Prologis Outperformance Plan (“POP”)

We allocate participation points to participants under our POP corresponding to three-year performance periods beginning every January 1. The fair value of the awards is measured at the grant date and amortized over the period from the grant date to the date at which the awards vest, which ranges from three to ten years. The performance hurdle (“Outperformance Hurdle”) at the end of the initial three-year performance period requires our three-year compound annualized total stockholder return (“TSR”) to exceed a threshold set at the three-year compound annualized TSR for the Morgan Stanley Capital International (“MSCI”) US REIT Index for the same period plus 100 basis points. If the Outperformance Hurdle is met, a compensation pool will be formed equal to 3% of the excess value created, subject to a maximum as defined for each performance period. POP awards cannot be paid at a time when our absolute TSR is negative. If after seven years our absolute TSR has not been positive, the awards will be forfeited.

We granted participation points for the 2019 – 2021 performance period in January 2019, with a fair value of $21.2 million using a Monte Carlo valuation model that assumed a risk-free interest rate of 2.6% and an expected volatility of 20.0%. The 2019 – 2021 performance period has an absolute maximum cap of $100 million. If an award is earned at the end of the initial three-year performance period, then 20% of the POP award is paid and the remaining 80% is subject to additional seven-year cliff vesting. The 20% that is paid at the end of the three-year performance period is subject to an additional three-year holding requirement.

The Outperformance Hurdle was met for the 2016 – 2018 performance period, which resulted in awards being earned at December 31, 2018. Initial awards of $75.0 million in aggregate were awarded in January 2019 in the form of 0.4 million shares of common stock and 0.8 million POP LTIP Units and LTIP Units. Participants are not able to sell or transfer equity awards received until three years after the end of the initial period. One-third of the remaining compensation pool in excess of the $75.0 million aggregate initial award amounts can be earned at the end of each of the three years following the end of the initial three-year performance period if our performance meets or exceeds the MSCI US REIT Index. Vesting for the 2016 – 2018 performance period for our Named Executive Officers (“NEOs”) follows the construct of the 2019 – 2021 performance period as described above, such that 20% of any amounts earned were awarded subject to a three-year holding period, and 80% of any amounts earned will cliff vest at the end of the seventh year following the initial three-year performance period. At September 30, 2019, there were 0.4 million unvested POP LTIP Units associated with the 2016 – 2018 performance period.

Other Equity-Based Compensation Plans and Programs

Our other equity-based compensation plans and programs include (i) the Prologis Promote Plan (“PPP”); (ii) the annual long-term incentive (“LTI”) equity award program (“Annual LTI Award”); and (iii) the annual bonus exchange program. Awards under these plans and programs may be issued in the form of restricted stock units (“RSUs”) or LTIP Units at the participant’s election. RSUs and LTIP Units are valued based on the market price of the Parent’s common stock on the date the award is granted and the grant date value is charged to compensation expense over the service period, which beginning in February 2018 was lengthened from three to four years for PPP and Annual LTI Awards and three years for bonus exchange awards offering a premium upon exchange. As our NEOs do not receive a bonus exchange premium for participating in the bonus exchange program, the equity they receive upon exchange for their cash bonuses does not have a vesting period.

Summary of Award Activity

RSUs

The following table summarizes the activity for RSUs for the nine months ended September 30, 2019 (units in thousands):

				Weighted Average
	Unvested RSUs			Grant Date Fair Value
Balance at January 1, 2019		1,255		$	54.48
Granted		538			71.38
Vested and distributed		(660	)		51.55
Forfeited		(43	)		62.45
Balance at September 30, 2019		1,090		$	64.29

LTIP Units

The following table summarizes the activity for LTIP Units for the nine months ended September 30, 2019 (units in thousands):

	Vested			Unvested			Unvested Weighted Average
	LTIP Units			LTIP Units			Grant Date Fair Value
Balance at January 1, 2019		3,293			2,177		$	56.05
Granted		-			917			70.94
Forfeited		-			(19	)		66.77
Vested LTIP Units		1,103			(1,103	)		54.45
Vested POP LTIP Units ⁽¹⁾		391			-		N/A
Conversion to common limited partnership units		(1,072	)		-		N/A
Balance at September 30, 2019		3,715			1,972		$	63.76

(1)	Vested units were based on the POP performance criteria being met for the 2016 – 2018 performance period and represented the earned award amount. See above for further discussion on the POP.

NOTE 9. EARNINGS PER COMMON SHARE OR UNIT

We determine basic earnings per share or unit based on the weighted average number of shares of common stock or units outstanding during the period. We compute diluted earnings per share or unit based on the weighted average number of shares or units outstanding combined with the incremental weighted average effect from all outstanding potentially dilutive instruments.

The computation of our basic and diluted earnings per share and unit was as follows (in thousands, except per share and unit amounts):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Prologis, Inc.	2019		2018		2019		2018
Net earnings attributable to common stockholders – Basic	$	450,639	$	346,345	$	1,181,470	$	1,046,858
Net earnings attributable to exchangeable limited partnership units⁽¹⁾		13,422		10,593		35,838		31,502
Adjusted net earnings attributable to common stockholders – Diluted	$	464,061	$	356,938	$	1,217,308	$	1,078,360

Weighted average common shares outstanding – Basic		630,929		574,520		630,356		546,612
Incremental weighted average effect on exchange of limited partnership units ⁽¹⁾		18,760		18,153		19,403		17,097
Incremental weighted average effect of equity awards		5,570		4,974		5,059		4,890
Weighted average common shares outstanding – Diluted⁽²⁾		655,259		597,647		654,818		568,599

Net earnings per share attributable to common stockholders:
Basic	$	0.71	$	0.60	$	1.87	$	1.92
Diluted	$	0.71	$	0.60	$	1.86	$	1.90

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Prologis, L.P.	2019			2018			2019			2018
Net earnings attributable to common unitholders	$	463,997		$	356,765		$	1,217,088		$	1,077,823
Net earnings attributable to Class A Units		(5,840	)		(5,039	)		(15,523	)		(16,216	)
Net earnings attributable to common unitholders – Basic		458,157			351,726			1,201,565			1,061,607
Net earnings attributable to Class A Units		5,840			5,039			15,523			16,216
Net earnings attributable to exchangeable other limited partnership units		64			173			220			537
Adjusted net earnings attributable to common unitholders – Diluted	$	464,061		$	356,938		$	1,217,308		$	1,078,360

Weighted average common partnership units outstanding – Basic		641,229			583,363			641,077			554,313
Incremental weighted average effect on exchange of Class A Units		8,154			8,412			8,282			8,467
Incremental weighted average effect on exchange of other limited partnership units		306			898			400			929
Incremental weighted average effect of equity awards of Prologis, Inc.		5,570			4,974			5,059			4,890
Weighted average common units outstanding – Diluted ⁽²⁾		655,259			597,647			654,818			568,599

Net earnings per unit attributable to common unitholders:
Basic	$	0.71		$	0.60		$	1.87		$	1.92
Diluted	$	0.71		$	0.60		$	1.86		$	1.90

(1)

The exchangeable limited partnership units include the units as discussed in Note 7. Earnings allocated to the exchangeable OP units not held by the Parent have been included in the numerator and exchangeable common units have been included in the denominator for the purpose of computing diluted earnings per share for all periods as the per share and unit amount is the same.

(2)	Our total weighted average potentially dilutive shares and units outstanding consisted of the following:

Three Months Ended